It’s no secret that hedge funds have been underperforming the market for years in aggregate, as many in the media are only all too happy to pound home. That could lead the average reader to think that hedge funds are bad stock pickers, which is not actually the case. When we look at the third-quarter returns of the hedge funds in our database which had at least 5 long positions in companies valued at $1 billion or more, we see their long picks returned 8.3% on average, a full 5.0 percentage points clear of S&P 500 ETFs. However, that long stock-picking prowess is often overshadowed by the hedged portion of their portfolios, in options, bonds, and short positions. We believe that investors should pay attention to hedge funds’ top picks for a chance to beat the market, and will share four such picks today, courtesy of the 13F portfolio of Taconic Capital Advisors, which are 21Vianet Group Inc (NASDAQ:VNET), Vereit Inc (NYSE:VER), FMC Technologies, Inc. (NYSE:FTI), and Synchrony Financial (NYSE:SYF).
Taconic Capital Advisors is a New York City-based hedge fund founded by Frank Brosens in 1999. The fund’s public equity portfolio has a value of $651.03 million as of June 30 and fund’s stock picks returned 13.18% when examining its long positions in non-microcap companies, of which there were 20. In our rankings, we consider only their long non-microcap positions. This way we can compare these returns to the returns of the S&P 500 ETFs, which are basically 100% long portfolios of large-cap stocks. In the third quarter, 95% of the 660 hedge funds tracked by Insider Monkey with at least 5 such positions returned positive gains from those holdings. Now then, let’s check out Taconic’s picks and see how they performed.
Taconic Capital Advisors sold 32% of its position in 21Vianet Group Inc (NASDAQ:VNET) during the second quarter, ending the period with a total of 1.15 million shares of the company, whose total value was $11.74 million. It turns out Taconic’s decision to sell some of its position was correct to some extent, as the stock lost 22.1% during the quarter. Given the fund’s otherwise strong performance, its decision to hang on to this stock tells us that it could be a strong bounce-back candidate in Q4. 21Vianet Group Inc (NASDAQ:VNET) was in 11 hedge funds’ portfolios at the end of June. VNET shareholders have witnessed a decrease in hedge fund interest recently. There were 15 hedge funds in our database with VNET positions at the end of the previous quarter. Tairen Capital, Citadel Investment Group, and PEAK6 Capital Management were among the hedge funds bullish on 21Vianet Group Inc (NASDAQ:VNET).
Taconic Capital Advisors had 1.97 million shares of Vereit Inc (NYSE:VER) heading into the third quarter. The aggregate value of this position was about $19.97 million. The stock was a mild success, returning 2.3% during the third quarter. The number of bullish hedge fund positions in Vereit dropped by two in Q2, falling to 29. Glenview Capital was the largest shareholder of Vereit Inc (NYSE:VER), with a stake worth $154.8 million reported as of the end of June. Trailing Glenview Capital was Highfields Capital Management, which amassed a stake valued at $116.7 million. Corvex Capital, Redwood Capital Management, and Glendon Capital Management also held valuable positions in the company.
We’ll check out two more of the fund’s stock picks on the next page.